Company's 401(k) Plan.
01 February 2011
Well, we’re in the second month of the new year—can you believe it?
One of the last pieces of legislation passed before the end of 2010 was an extension of the Bush-era tax cuts. The legislation extends a myriad of tax breaks and credits for everyone from low-income folks to the wealthy. It patches the Alternative Minimum Tax for two more years; extends the college tuition tax credit, child tax credit and Earned Income Tax Credit for two years; and allows businesses to deduct 100 percent of certain investments in the first year. The 15% tax cap on qualified dividends and long-term capital gains was also extended. And a tax rate of 0% on qualified dividends and long-term capital gains will apply for investors in tax brackets below 25% (those making less than $34,000/year).
The legislation also temporarily cuts the 6.2% payroll tax (Social Security) for all workers to 4.2%. This tax holiday will last for all of 2011.
With that 2% tax cut, now would be a good time to consider increasing your company-sponsored 401(k) salary deferral by 2% of your salary. It makes sense that the money you are saving by not contributing to Social Security should be invested in your company retirement plan or an IRA.
For example, a 46-year-old man earning $48,000/year plans to retire at 66.
If that individual increased his salary deferral to his 401(k) plan by 2%, and that 2% deferral earned an average of 7% per annum for 20 years, that 2% would add $41,674.13 to his 401(k).
If you aren’t currently contributing to your company 401(k), now might be a good time to start. As always, if you have questions, please call our office.
Smart Investor Wealth Management System Tip:
Call our office at (916) 435-2100 if you would like to learn how to use the retirement calculator!